Nigerian tax to GDP ratio of 7% not acceptable, says Okonjo-Iweala

The Coordinating Minister for Nigeria’s Economy, Dr Ngozi okonjo-Iweala says the nation’s tax to Gross Domestic Product (GDP) ratio of 7 per cent of GDP Is not sufficient to build a strong economy.

Okonjo-Iweala disclosed this during a presentation at the Spring meeting of the World Bank Group and the International Monetary Fund (IMF) in Washington DC.

The Minister spoke on the topic “Fiscal Policy, Equity and Long-Term Growth in Developing Countries”.at a forum of the World Bank.

“In my own country, Nigeria, tax to GDP ratio is an unacceptable 7 per cent of GDP as we depend mostly on government’s direct share of oil revenue.

“This has to change,’’ she said.

According to her, the fundamental observation is that for low-income countries, more resources need to be mobilised from domestic sources given the anticipated decline in Official Development Assistance (ODA).

She noted that the IMF estimates that many low-income countries still have tax revenues which fall below the generally accepted threshold of 15 per cent of GDP.

“For example, low-income countries in Africa are below the 15 per cent of GDP.

“Overall, we know that a further increase in tax revenues of about 2-4 per cent of GDP is attainable in many low-income countries.

“Some research by the OECD indicates that one dollar of ODA spent on building tax administration capacity results in another 350 dollars in increased tax revenues,’’ she added

Okonjo-Iweala said that in developing countries, policy-makers must first take responsibility for reviewing how resource mobilisation in their economies would be improved.

She said that a complete diagnostic had been carried out, with the help of McKinsey consult, to see how to improve compliance in the tax system.

She noted that about 75 per cent of registered firms were not in the tax system.

“When we looked more closely at our tax payers’ database, we discovered that about 65 per cent of registered tax payers had not filed their tax returns in the past two years.

“The main culprits tend to be this intermediate group of medium-sized professional service providers, contractors, and landlords.

“This non-compliant group fall in the grey area between the informal sector and large companies and I think, from an enforcement viewpoint, we can get a good `bang for the buck’ by focusing on this sector,’’ she said.

Okonjo-Iweala said that the estimated tax leakages due to unpaid real estate rentals in Nigeria amounted to about 250 million dollars per annum. (NAN)